Northrim Bank launched the Alaskanomics blog to provide news, analysis and commentary on Alaska’s economy. With contributions from economists, business leaders, policy makers and everyday Alaskans, Alaskanomics aims to engage readers in an ongoing conversation about our economy, now and in the future.

Northrim Bank launched the Alaskanomics blog to provide news, analysis and commentary on Alaska’s economy. With contributions from economists, business leaders, policy makers and everyday Alaskans, Alaskanomics aims to engage readers in an ongoing conversation about our economy, now and in the future.

Thursday, August 24, 2017

Alaska’s Department of Labor and Workforce Development has developed a new feature in their monthly Trends magazine. Each issue will contain an expanded set of economic measures that will offer insight into the health of the state’s economy. The economic measures will show how current data compares to the 10-year average. The article will also provide historical context and look at comparisons in the US economy.

The August issue of Trends looks at job growth, the unemployment rate, and gross domestic product growth. The graphics below provide a visualization of the economic measures outlined in this month’s Trends.

The top half of the gauges represent relative economic strength and the bottom represents weakness. Please visit the Department of Labor for the full report on this month’s economic measures.

Friday, August 18, 2017

The seasonally adjusted unemployment rate for July increased two-tenths of a percent to reach 7.0 percent. This is much higher than the national average, which was 4.3 percent last month.

Again, the story for employment in Alaska is job loss. An estimated 7,500 jobs were lost from July 2016 to July 2017. The industries with the largest losses were oil and gas, construction, professional and business services and state government. Each had over 1,000 jobs lost in comparison to July 2016. Local and federal government and healthcare did see gains over last year’s employment in July.

Not-seasonally adjusted unemployment was 6.6 percent in July. It was a down four-tenths of a percent from June, which is a slightly smaller than usual decrease. July and August are the height of seasonal employment in seafood processing, construction, and leisure and hospitality.

The boroughs with the lowest unemployment continue to be areas with a lot of fishing and tourism. Kusilvak Census Area continues to have the highest unemployment in the state at 24.5 percent.

Wednesday, August 16, 2017

Commonwealth North (CWN) has a long standing commitment to a sound state fiscal policy and working to close the large gap between revenue and spending in the state’s budget. With this in mind, CWN has created a Fiscal Policy Study Group, which became the Fiscal Action Coalition. CWN’s Board of Directors and the Fiscal Policy Study Group published a report in June 2015 that outlined recommendations on how to address the fiscal gap in the state’s operating budget. The report was updated in January 2017. The State's Operating Budget: Critical Crossroads, Choices and Opportunities can be found at CWN’s website, or in the ‘Resources’ section of Alaskanomics.

The report is a great answer to the question of what we should do about the fiscal gap in the operating budget. It outlines strategies for reducing the gap, raising new revenues, and creating efficiencies in the budget process. The updated report highlights what changed between the 2015 and 2017 report. The revenue decline has continued and savings is still being used to fill the fiscal gap.

The report not only takes a look at the past budgets, but also gives examples of ways to strategically reduce spending while still providing essential government services. Each recommendation is thoroughly researched and gives concrete examples of how the legislature can move forward with the recommendations.

Many in Alaska know that there needs to be a solution to the fiscal gap in the state budget. The work of groups, such as Commonwealth North, shows that there are individuals ready and willing to help educate Alaskans on the issues and work towards compromise and a solution. Please visit the ‘Resources’ section of Alaskanomics for information on more groups working to close the fiscal gap.

Thursday, August 10, 2017

Alaska’s Department of Labor & Workforce Development’s July issue of Trends discussed the Cost of Living in Alaska. The article is an annual favorite for Trends readers and shows how the cost of living varies throughout Alaska and compares to the rest of the nation. The news for 2016 was not terrible, in fact, it was the second year in a row that the increase in the cost of living in Alaska was under 1 percent.

Anchorage is the only community where inflation is measured. Components that play into the inflation calculation include energy, food and beverages, transportation, recreation, clothing, housing and medical. The first four in the list decreased in 2016, while the final three increased. In 2016, energy prices dropped by 5.8 percent, this decline has helped hold inflation low, especially in regards to categories that depend on fuel, particularly transportation and housing. Energy prices do play a role in the housing prices, it is more likely that the recession in Alaska is the reason that housing prices didn’t increase much in 2016. Housing prices did increase in 2016, but only by 0.9 percent. This is the smallest increase since 1988 when prices fell by 2.2 percent. Medical costs rose 4.5 percent, but are a small portion of the inflation calculation. Medical costs have increased an average of 4.1 percent a year over the past decade, with the largest increase in 2010 with a 5.7 percent increase.

Below is the average breakdown of an Anchorage citizen's household budget. Healthcare costs are very high in Alaska. The average monthly premium purchased on the individual market is $300 higher than the next highest state, West Virginia. It is over double the national average.

Alaska cities have high costs of living, but there are others that are higher. Anchorage, Juneau, Fairbanks, and Kodiak all rank on the Council for Community and Economic Research’s survey of more than 250 US cities. The survey publishes the difference in cost of common items between the cities in the survey. Items that are higher than the national average in the 4 Alaska cities include a can of peaches, iceberg lettuce, 2-liter bottle of Coca-Cola, whole wheat bread, a dozen eggs and a bottle of white wine. The items that on average are cheaper in Alaska are potato chips and rib-eye steak. Not surprisingly, but doctor and optometrist visits in Alaska are well above the national average. Going to an optometrist in Alaska will cost you double from the national average. A medical doctor visit is much higher as well, but not quite double the rate. Alaska is the 3rd most expensive state, behind only Hawaii and California.

The July Trends edition has a lot of great comparisons of cost of living, broken down in various categories. Housing prices, rent and house affordability are some of the categories highlighted in the report. You can find the rest of the article at the Department of Labor’s website.

Friday, August 04, 2017

Alaska’s seasonally adjusted unemployment rate for June rose one-tenth of a percent and sits at 6.8 percent, well above the national average, which is 4.4 percent. While there was an increase in unemployment, perhaps the more telling number is that June employment was down by 5,500 jobs, or 1.6 percent. This is compared to June last year. This number seems high, but in comparison to June 2016, it suggested tapering of job losses. During the fall of 2016, job losses were as high as 9,000 compared to the same month in the prior year. This equals about 2.5 percent. The industries with the largest losses were state government, construction, and oil and gas at -1,500, -1,400 and -1,300 respectively. These three industries account for 70 percent of the jobs lost across the state.

The boroughs and census areas with large fishing were the lowest, Aleutians East and Aleutians West with 2.7 percent and 3.8 percent respectively. Tourism areas also had low rates with Skagway and Denali Borough at 3.5 percent and 4.1 percent. The highest rate was 23.7 percent in the Kusilvak Census Area. The census area is on the Bering Sea Coast, north of Bethel, and often has the highest unemployment in Alaska.

Tuesday, August 01, 2017

Alaska’s Department of Commerce, Community and Economic Development has been working on an economic strategy and the first draft was recently published. This document is a collaboration of people from across many sectors and areas of the state. It outlines the economic plan for Alaska in the next five years. The document is a great tutorial for the best way for Alaska to move forward, out of economically difficult times.

The drafting of the strategy was an exercise in compromise as it included representatives from all sectors, urban and rural, private and public sector. It will be a great resource for Alaska as we move forward and can be used as a common base for communities across the state. Northrim Bank was proud to be part of this project and support the use of the final report.

The report was jointly funded by the State of Alaska and the Federal Economic Development Administration. It will be the groundwork for economic plans throughout Alaska. The project summary is listed below and the final report can be found at https://northernopportunity.com/final-draft/ when it is completed.

Project Summary

Northern Opportunity: Alaska’s Economic Strategy is a five-year (2017-2022) economic development plan for Alaska. Driven by the need to improve the resiliency of the state’s economy and intentionally lay a foundation for future growth, this plan follows the U.S. Economic Development Administration’s Comprehensive Economic Development Strategy (CEDS) framework. This is the first statewide CEDS developed for Alaska.

The decline in global oil prices in 2014-2015 made clear the need for a coordinated statewide economic development strategy, as Alaska’s economy has seen significant contraction. Employment in oil and gas extraction, construction, business services, state government, and others have seen sharp declines. At the same time, a thriving entrepreneurship scene as well as healthy seafood, visitor, mining, and health care sectors provide a basis for optimism. The state’s abundant natural resources and recent oil discoveries also point to opportunities for growth. As such, this plan comes together in the spirit of optimism, to capitalize on strengths, as well as to mitigate challenges to economic resilience.

Northern Opportunity: Alaska’s Economic Strategy is the result of eight months of extensive outreach and reflects the input of communities, businesses, public entities, non-profits, Tribal organizations, and individual Alaskans. Information for this project was gathered through research, regional CEDS documents, a series of community forums in every region of the state, business forums, and two online surveys: one directed to individual Alaskans and the other toward business leaders.

VISION: Northern Opportunity: Alaska’s Economic Strategy’s vision is that Alaska will have a stable and sustainable economy that generates quality jobs, capital investment, and new revenue to benefit the people and businesses of Alaska.

MISSION: Northern Opportunity: Alaska’s Economic Strategy’s mission is to arrive at a consensus among Alaskans regarding our economic future, which will result in the articulation of priorities and goals for the state economy. These efforts will promote new investment and economic opportunity for the benefit of all Alaskans.

Most regions throughout the state of Alaska have a CEDS or some version of a regional economic development strategy. Northern Opportunity: Alaska’s Economic Strategy utilized the most recent regional economic planning documents from around the state to inform all aspects of this strategy. The statewide strategy is not meant to replace any regional strategies, rather highlight areas of focus that have commonality from region to region, and provide a coordinated, high-level economic strategy for the entire state.

This five-year strategy is meant to be a roadmap for economic development in Alaska and will span 2017 through 2022 with yearly updates. Research and community feedback allow for a clear understanding of Alaska’s current economic position and underlying trends affecting recent economic performance, while highlighting areas in need of greater resilience. Conversations with community and business leaders throughout the state, investigation of economic development best practices, and additional research were used to identify the most strategic directions forward for the state. Actions were identified that can be taken by public and private sector partners to maximize economic opportunity and collectively mitigate the challenges faced by Alaska businesses and residents. This CEDS also identifies a wide range of stakeholders and strategic partners from government, regional economic development organizations, industry associations, and private businesses.

The CEDS development process began in September 2016 and ran through April 2017. During that time, project staff worked with over thirteen communities, gathered input from all major industry sectors in Alaska, and analyzed data from more than 700 individual and business survey respondents. This CEDS was facilitated and compiled by the State of Alaska’s Department of Commerce, Community, and Economic Development (DCCED), with the core project team from the DCCED Division of Economic Development (DED), and contracted assistance from the University of Alaska Center for Economic Development (UACED). The project was jointly funded by the Federal Economic Development Administration (EDA), and the State of Alaska.

The State of Alaska’s DED supports the growth and diversification of Alaska’s economy through business assistance, financing, promotion, and public policy. The division works closely with industry leaders, allied agencies, and economic development organizations across the state, including the ten state-designated Alaska Regional Development Organizations (ARDORs).

Key Goal Areas

The CEDS process identified six key goal areas of focus. These goals were developed by distilling the input the project team received from individual and business surveys, community and industry meetings, and Strategy Committee engagement.

Business Development: Cultivate a resilient business climate that supports growth and expansion of existing and emerging industries.

Finance and Investment: Maximize the productive use of capital for Alaska business expansion.

Thursday, July 27, 2017

AEDC’s annual 3-Year Outlook Luncheon was held Wednesday and featured a recap of the 2016 employment numbers and a look forward to the next three years. 2016 was a difficult year that saw 3,000 jobs lost in Anchorage. Of note are the industries who stayed flat during 2016. Specifically the social assistance sector. These organizations saw an increase in need throughout the community, but did not grow their sector. They worked to do more with less while still meeting the increased need.

Moving to the first half of 2017, the preliminary numbers show a loss of 1,600 jobs, which is a decrease of 1 percent. Unfortunately there is only a short list of sectors who gained or were flat in the first six months of the year. There was a loss in retail of 600 jobs, but stores have not been closing. Like many sectors, they are doing more with less. There is concern about the ability of brick and mortar shops to stay open with many retailers relying solely on ecommerce.

Housing has remained steady in Anchorage but AEDC warned that we are not growing as much as we could due to permitting and zoning issues within the Municipality. Building is strong in the Mat-Su Valley and Anchorage needs to focus on building housing that young professionals and seniors are looking to find. This will take consideration from the Municipality for zoning and permitting to allow for such construction.

The program continued with the 2017 Q2 Anchorage Consumer Optimism Index. The overall consumer optimism index was at 47.5, the lowest mark since the report was started. The breakdown of confidence levels are as follows: Local Economy Confidence: 46.9; Personal Financial Confidence: 62.0; and Future Expectations: 40.6. Anchorage consumers feel good about their personal finances but are very unsure of the future and the local economy. It was noted that this survey was distributed during the uncertainty of the legislative session, which likely led to a lot of the lack of confidence in the future.

For the 3-year outlook, Anchorage will likely remain stable in some factors, but will probably remain in a recession for a year beyond what was originally predicted. Air transportation is a chance for Anchorage to shine. Passenger volume is expected to grow in the next three years as well as air cargo. Anchorage is the 5th busiest air cargo airport in the world. Volume through the Port of Anchorage is also expected to rise through 2020.

Anchorage has opportunities in this time of transition and Mayor Berkowitz is very optimistic that as a city we can come out of the recession strong and bring Alaska into a new season of prosperity.

Monday, July 10, 2017

As the Legislature grapples with huge shortfalls in state revenues – the deficit for this fiscal year is estimated at $2.5 billion – there’s talk of new state taxes, which is causing discomfort among many. Never mind that citizens pay virtually no state taxes in Alaska and even get an annual check from the state.

Angst over this has caused extended sessions of the Legislature for two years now. Lines of disagreement are pretty clear and, just like in Washington, D.C., pretty partisan.

Democrats, who control the state House, are arguing that we’ve cut state spending enough, that levels of public services are now at bare bones, and that it’s time to raise revenues. They are pushing for reimposition of a state personal income tax (Alaska had one years ago) and for higher taxes on oil producers.

Republicans, who control the state Senate, say there’s more room to cut spending and we shouldn’t impose new taxes when the state’s economy is down.

Senators agree that taxes on citizens may be eventually needed but now is not the time. Meanwhile, hitting the oil industry with new taxes, with oil prices at half what they were two years ago, seems unwise, Senate leaders say.

The feelings are intense over these disagreements in the state capitol and we’re unlikely to solve the problem this year, to get a long-term fiscal solution in place. That punts the issue to next year and 2018 is an election year, so it seems unlikely much will happen that soon.

Paralysis in the state capital? Politicians unable to negotiate tough decisions? That looks pretty familiar, actually, considering that Illinois went without a budget for three years and New Jersey actually had a state government shutdown, although it was brief.

But our state isn’t really running out of money with $60 billion in the Permanent Fund, and since we’re still sending out Permanent Fund Dividend checks claims of a fiscal crisis look pretty silly when viewed from the Lower 48.

Still, we have drawn down on savings to fund several years of multi-billion-dollar deficits. In fact, we’ve taken $11.3 billion from two ready asset savings funds over the last four years, the Constitutional Budget Reserve and the Statutory Budget Reserve.

At the end of this state budget year next June 30 the Constitutional Budget Reserve could be down to about $2.2 billion (the Statutory Budget Reserve is essentially depleted. Without a change to the state fiscal system, that’s not enough to fund the following year’s budget, FY 2019.

We have to change the system because it’s obvious oil can’t pull this train any longer. In fact, oil prices have dropped again.

But while we haven’t made much progress toward a final solution it’s worth reflecting that, in fact, things are moving in the right direction.

We’ve cut spending, hugely. Our annual spend of state undesignated general fund dollars, the most common way of looking at the budget, is about half of what it was four years ago, in Fiscal Year 2013.

We’ve also largely agreed that we should use some of the Permanent Fund’s annual income, about $3 billion in a typical year, to help fund the state budget. We created the Permanent Fund in 1976, many believe, to help pay for public services when oil revenue winds down. That time has come, after 41 years.

We’ve also agreed, in principle, that the Permanent Fund dividend should be limited through a new formula, so that some of that money could be used for public services. There’s still some disagreement on this – Democrats argue it should be coupled with an oil tax increase – but the fact that most legislators sign off on lowering the dividend is a huge accomplishment.

All this is still a work in progress, however. The structural changes, mainly a framework for using the Permanent Fund income (changing its management so it functions more like an endowment) and the trimming of the dividend, has passed both the state House and Senate in different forms, but they have not yet been finally agreed on. The oil tax question, which is still part of the debate, is not resolved, either.

But even if legislators left these things hanging until 2018 (more likely 2019) we are moving toward a solution. Political bodies move slowly in making major decisions and sometimes it takes three years or more for people to really get their arms around a problem and do something.

I recall that it took three years for the state to make a major change in its state oil and gas tax structure (work started in 2010, it was finally done in 2013) after a huge amount of debate, and even then the question had to be ratified by voters through defeat of a citizen initiative to overturn the Legislature’s action.

An initiative may happen again, with at least the Permanent Fund Dividend part of the proposed fiscal change. Plans are already being laid for a ballot initiative to overturn a trimming of the dividend, if it happens.

Even if these structural changes are made we still have a budget problem, although it is not as serious. These changes would bring about $1.8 billion in new revenues to the state general fund for the budget (they would, separately, fund about $750 million for a trimmed-down citizen dividend). If we assume about $1.5 billion in typical state revenues, from oil and other sources, total revenue would be about $3.3 billion.

That’s still $800 million short of funding a $4.1 billion budget (undesignated general funds), which is where the debate on new taxes comes in. The House Democrats’ proposed income tax would bring in about $700 million a year and an increase in state fuel taxes proposed by Gov. Bill Walker would bring in about $70 million a year.

That solves the math part of the problem. However, Republicans in the Senate and House still say we can wait on the income tax part, meanwhile enacting other parts of the plan, and draw a bit more from savings. The draw would be substantially less because there are new revenues for the budget from Permanent Fund earnings. If those continue to grow, which is likely, the remaining gap may be taken care of in a few years, senators argue.

Democrats’ response to this is that the Senate plan assumes flat funding of the operating budget and no real money for state-funded construction in the capital budget, or for addressing a $1.8 billion backlog of deferred maintenance on university and other state buildings.

Democrats say we should get with this and do new taxes now if we’ll need them eventually. Republicans say not yet, that we can wait longer. And so it goes.

Tim Bradner is the editor of the Alaska Economic Report and co-publisher of the Alaska Legislative Digest

Friday, June 23, 2017

It took 157 days and two special sessions called by the governor, but the Alaska House and Senate have passed an operating budget for fiscal year 2018. The budget is a compromise of the two bodies that will allow the state to avoid a government shutdown on July 1. While we are disappointed that there was no systemic change in this year’s fiscal planning model, we are looking for the silver-lining in the situation.

The limit to the Permanent Fund Dividends formalizes the amount for the check ($1,100 or about half of historical practice) and reduces spending for that line item. The budget does not provide inflation proofing for the Permanent Fund, which reduces such appropriation and allows more flexibility in the earning reserve or spendable portion of the Fund. The budget was balanced by taking approximately $2.4 billion from the Constitutional Budget Reserve, which does not have much left in it, but the good thing is that it allows for more earning power in the Permanent Fund by not taking money from the earnings reserve. This is an interim positive step until a POMV type systematic changes are made that builds a more sustainable budget with new revenue sources.

The new budget is not good and not the way that government or business should be run. That being said, it is not debilitating for the State of Alaska and the fact that there is intent to work towards systemic changes is heartening. We will continue to work to educate legislators and the public about the importance of a structurally balanced budget that not only reduces spending but also utilizes the earnings reserve of the Permanent Fund and raises new revenues. This fight is not over, but we have an operating budget for the fiscal year that starts in one week.

Tuesday, June 20, 2017

Today marks the official anniversary of the completion of the Trans-Alaska Pipeline System (TAPS). 40 years ago today the first oil flowed to Valdez through TAPS. This was the culmination of a three year, $8 billion project that employed approximately 70,000 people during construction.

In the past 40 years, more than 17 billion barrels of oil have been produced on Alaska’s North Slope. Through 2016, the oil industry has invested more than $55 billion in Alaska. In many years, oil has funded 90 percent of the state’s unrestricted General Fund and generated more than $180 billion in total state revenue. Today, oil revenues account for approximately 67 percent of unrestricted General Fund revenue.

There is no doubt about the impact that the oil and gas industry has had on Alaska’s economy. Prudhoe Bay has exceeded initial projections and is the third-largest oil field in the US by proved reserves. Despite low oil prices, 2016 was the first year in a decade that had increased production through TAPS. This year is expected to have another increase. If the prediction holds true, it would be the first time with 2 years of increased production since 1988.

As we celebrate the Summer Solstice, we think about all that TAPS has brought to Alaska’s economy. The longest day of the year brings life and growth, just as TAPS has brought life and growth to Alaskans throughout the state. Many have their own stories of working on the pipeline or coming to Alaska for a fresh start. The same fresh start that we feel on Solstice as we look forward to the coming summer season. Happy Anniversary to the Trans-Alaska Pipeline System and all who have helped to make it a lifeline for Alaska.